Fiat Currency Should NOT Be Blind Belief – Part 2
Congress just keeps spending money we don’t have.
It took just five weeks to add $1 trillion to the national debt after Congress authorized yet another increase in the debt ceiling.
The US debt clock projects our borrowing out to 2027 – it is scary:
It now takes over $1 trillion in taxes just to pay the interest, which has now surpassed the military budget. There’s more!
Our US UNFUNDED LIABILITIES (political promises) are projected over $255 trillion, more than six times higher than projected US debt.
Where is our government going to get the money to pay the bills, interest on the skyrocketing debt, and keep the political promises, particularly for those depending on Social Security and Medicare?
Congress already monetized $9 trillion, citing a crisis for justification. Will they miraculously become responsible, or repeat the process, causing even higher inflation that we are currently experiencing?
In part one of last week’s interview, friend and currency expert Chuck Butler explained what is causing our high inflation and told us:
“Congress must stop deficit spending; just STOP! A Balanced Budget would do wonders for this mess we’re in, not just today, a responsible Balanced Budget from now till the end of time! That means adult, hard choices, what real leaders do. ….
When the Gov’t deficit spends, that means new currency has to be issued, and this is an increase in Money Supply, plain and simple…
Dennis, our elected representatives need to be working together. I’ve never seen our government so polarized.
One way besides the metals of Gold & Silver to reduce the deadly effects of inflation on your investment portfolio, is with foreign currencies… Not just any foreign currency, but ones that meet your criteria and stick with them!”
Our discussion continues….
|“As soon as we abandon our own reason, and are content to rely on authority, there is no end to our troubles.”
— Bertrand Russell
DENNIS: Chuck, I agree, our political class is totally polarized with the media fanning the flames.
Putting our individual wealth all in US dollars is BLIND FAITH in our politicians; a very dangerous choice.
Chuck, while diversifying among currencies is a great hedge against inflation, you are still trading fiat currency; one government’s political promise for another.
While the USD may be king to those in Argentina, their USD investments are also eroding daily due to inflation, just slower than their home currency.
While Adam Smith said money is a matter of belief, today it might be “Who do you trust?”
Before we begin discussing good alternatives, I’d like our readers to understand why the process works. Can you elaborate on that for a moment?
CHUCK: Going back to the start of this interview, Urs is based in Switzerland. Europeans historically hold investments and currency in several different countries. It is how they think and their way of life.
The hedge occurs because currencies trade in pairs. As Frank Trotter said, when he first started going to Argentina, a USD traded for 8 Argentine pesos, now it is 300.
Think of it this way. Let’s take an asset like gold, (real money) worth $10,000. At one time it would take 80,000 pesos to buy that asset; today it would take 3,000,000. Gold hasn’t really gone up in value, the buying power of the fiat currency has gone down.
Currency traders go back to the basics, which countries are going eyeball deep into debt; which are more fiscally responsible? Realistically, they are looking at the country, their political leaders, the direction of their debt, the viability of their economy and much more. It is NOT just trading US dollars for other currencies.
In a recent Daily Pfennig, I wrote:
“Well, you know one of the best-performing currencies these days? I can’t believe I’m talking about this currency so glowingly…. The Mexican peso…. Last week the peso had reached a muti-decade high of 17.05, and this morning, the peso is 16.89….
Remember the peso is a European-priced currency so the lower the price goes, the more return to you VS dollars…. In March, the peso traded 19.05…. So, the higher interest rate in Mexico is finally helping attract buyers to the peso…. Just be careful here folks, I’ve seen too many investors, and businesses get burned in Mexico….”
While I compared the Mexican peso in relation to the USD, I’m sure in Europe, Japan, Argentina, and other countries, traders have traded those currencies for pesos. Remember, they are traded in pairs, one goes up, the other goes down.
Investors need to understand what is going on in the world, not only from the industrial side, but also their governments and their fiscal direction to make good choices.
DENNIS: Wow, it makes perfect sense, but a lot to digest, and certainly one that most US investors are not used to.
Chuck, I fear blind faith in the US government and dollar could do to our citizens what Argentina has done to theirs: destroyed much of the nation’s wealth.
You have more experience trading currency than anyone I know. How did you factor in all the variables to make your choices?
CHUCK: Dennis, I used to travel around North and Central America, preaching to people that buying foreign currencies is an excellent diversification of your investment portfolio…
I would tell them a foreign currency is the “stock of the country”. You have to think about currencies this way… And once you do, you’ll then apply the same criteria you use to buy stocks… including: balance sheet, yield, ability to pay back debt, leadership, and the sins of their past.
I would ask the audience for a show of the hands from those who only buy one stock… Seeing none I would then ask them why then do they only own one currency (the dollar)? Case closed…
Like stocks, the criteria and performance constantly are changing.
While I don’t usually give people the answers to these criteria, but I’m currently pointing out countries like: Singapore, Russia, and New Zealand. That’s sad, isn’t it? With all the major countries in the World, that only 3 currently meet my criteria?
After years of disregard for debt accumulation, the countries of the world, led by the U.S. have gone overboard with debt, and now all we’re left with is 3 countries that didn’t follow…
In the article, I added an honorable mention and caution:
“On the other side of the planet from pesos, is the Swiss franc, that has been performing nicely ever since the Swiss National Bank got interest rates on the positive side of the ledger, and went about addressing their rising inflation in a timely manner – (unlike) the Fed/ Cabal/ Cartel did….
…. Be careful with the pound sterling, folks…. They have a mortgage bubble in the U.K., and with interest rates rising, it’s all going to come crumbling down at some point…something may be quite evident, might not be imminent…. I’m just saying…”
Governments and industries are constantly changing. Our US challenge is the mainstream media hypes “crisis” type news, and very little real news about the rest of the world. It takes time, and a lot of research from good sources to know what is going on in the world.
Dennis, I don’t mean to sound harsh, but government spending and instability of the dollar is scary. Spending time understanding the world is well worth the time invested for citizens to protect their wealth.
DENNIS: One final question. Gold sits patiently waiting for a high inflation event and then it shines.
Our readers need income. I’ve talked about owning dividend-paying stocks in other currencies earning income and hedging against inflation.
Are there other investment vehicles where our readers can diversify their currency safely and still provide some income?
While there are many options for income and inflation protection, there’s only a few that I follow and am comfortable investing in and discussing. They include: Gold, Silver, Currencies, Oil, and Bonds…
At one time I was a bond trader, and I love bonds. Today I’m leery of U.S. Treasuries… Our country will continue the supply of Treasuries as deficit spending has no roadblock any longer. This overabundance of treasury debt will water down the value of the existing stock of Treasuries. To continue to attract more capital they will have to raise the yields. As the yield goes up, the bond price goes down… If you try to sell them ahead of maturity you will probably take a loss.
I bought Russian rubles a couple of years ago, when no one on earth wanted to own rubles – because of their ties with Oil, the country’s balance sheet, their yield, and their Central Bank leader, who I have great respect for.
You have to remove your fear of owning Russian rubles; It’s an investment not a political stance…
From my view in the cheap seats, it appears that the dollar has peaked and is finally ready to enter a long-term downtrend. As the process continues down, picking currencies to profit from the dollar’s weakness will become easier. I’m with you, blind faith in the USD offers almost zero inflation protection. Just sayin….
Dennis here…. Chuck helped me realize holding all your wealth in any single currency is a risk; much like Argentina, your wealth could be easily destroyed. In addition to gold and hard assets, holding wealth denominated in other currencies offers additional wealth protection.
A little help means a lot!
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On The Lighter Side
When we got to Indiana, the locals were complaining about the heat. The forecast called for highs to touch 90 and drop to 70 at night. Jo and I just grinned, compared to what we left in Phoenix, this weather is very pleasant; particularly in the evening.
With spring rains, we were really surprised at all the flowers blooming in our yard. What was scraggly green shoots when we left is now full-blown pretty.
The neighborhood is full of beautiful hydrangea, which I really like.
Before we left in late June, we planted a tiny plant in front of the flag pole. It was a real surprise to see it had more than doubled in size and was blooming proud. If it grows like the others in the neighborhood, it will fill a lot of the area around the front of the pole. I hope it leaves me enough room to easily raise and lower the flag.
Quote of the week…
Here are two for this week:
“The only way government bureaucrats know of keeping prosperity going is to inflate some more – to increase the deficit or to pump more money into the system.” — Henry Hazlitt
“Only the naive inflationist could believe that government could enrich mankind through fiat money.” — Ludwig von Mises
Subscriber William T. shares some clever observations:
- NINE OUT OF EVERY 10 living things live in the ocean.
- THE BANANA cannot reproduce itself. It can be propagated only by the hand of man.
- AIRPORTS AT HIGHER ALTITUDES require a longer airstrip due to lower air density.
- THE MOON moves about two inches away from the Earth each year.
- GLASS takes one million years to decompose, which means it never wears out and can be recycled an infinite number of times!
- IF YOU STOP GETTING THIRSTY, you need to drink more water. When a human body is dehydrated, its thirst mechanism shuts off.
- ZERO is the only number that cannot be represented by Roman numerals.
- PEANUT OIL is used for cooking in submarines because it doesn’t smoke unless it’s heated above 450F.
- THE ROAR that we hear when we place a seashell next to our ear is not the ocean, but rather the sound of blood surging through the veins in the ear.
And my favorite…want to lose some weight?
- EVERYTHING weighs one percent less at the equator.
Until next time…
“Economic independence is the foundation of the only sort of freedom worth a damn.” – H. L. Mencken
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